Don’t switch in haste

JOHANNESBURG (July 24) - Higher interest rates have prompted many homeowners to think about switching their home loan to a different bank where they can perhaps get a better rate, but before you go this route you need to know exactly where you stand with your current lender.

So says Berry Everitt, MD of the Chas Everitt International property group, who notes: ”It may be a better option to see if you can’t negotiate a better rate without moving your loan – and especially so now that the National Credit Act has made it more difficult to get new loans.

“And it is a strong possibility if the value of your home has increased or your credit rating has improved since you first obtained the loan.”

On the other hand, if you have not had your current loan long, you should check to see if there would be any penalty for early repayment when moving to another bank.

Writing in the Property Signposts newsletter, Everitt says that if you do decide to switch, or refinance your home, the steep increase in most property values in recent years should mean that you can release additional capital to extend or modernise your home and further improve its resale value.

“But you also need to be aware that a new mortgage may lock you into another 20-year loan. This may not be a good move if you are only a few years away from paying off your original loan.”

It is also important to bear in mind that the cost of registering a new bond with a new lender may absorb the savings of a lower interest rate for several years, and it is crucial to determine whether you would still benefit from any future interest rate cuts with the new lender.

“In short you need to be fully aware of all the potential problems as well as the benefits before making a switch. And the best way to obtain the information you need is to consult a knowledgeable loan consultant from a reputable mortgage originator.”
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